In most situations, your pension is being paid through a contract with an insurance company. The benefit itself will normally have been chosen by you before that pension started. You will not be able to change that contract in any circumstances.
If you are in receipt of a drawdown type pension where you are not currently taking all of your pension (i.e. your pension has not been fully secured with an insurance company) you may be able to change that part of your pension which has not yet been insured. These arrangements (usually referred to as ‘income drawdown’) are operated by insurance companies and a few company pension schemes.
This Factsheet deals with the more common situation of an insured pension.
This Factsheet is designed to make you think about various aspects of your immediate relationships and how these have a bearing upon your pension benefits.
Some of the points are more obvious than others, but they are all important, so take a while and think about you, your family and your immediate relationships.
If you are intending to get advice from a Financial Adviser these are the issues you should expect to be asked to consider (and often many more).
Why is my family important in terms of my pension benefit?
Employer sponsored money purchase pension schemes can provide much more than a pension for scheme members. Benefits can be paid on the death of a scheme member and should anything happen to you, then your partner, children and dependants may be entitled to an income and in certain circumstances, a lump sum (usually because a minimum guaranteed payment period had been built in when your member’s pension had commenced, e.g. 5 or 10 years).
In a money purchase pension, if you die after you start to receive your pension, the dependants’ benefits will be determined by the decisions you made when you retired. If, at that time, you selected who should be the beneficiary of a retirement pension after your death, then that person will receive the pension benefit on your death. However, this is subject to that person falling within the Inland Revenue’s definition of dependant.
When making enquiries with your scheme make sure any benefits they quote are relevant to your situation as a pensioner member.
Who would be included as a ‘dependant’?
Inland Revenue Rules can change from time to time reflecting changes in legislation or social situations. However, any changes may not necessarily apply to your benefits as a pensioner member – it depends on what changes are made. The current definition, applying to pensions commencing after 6th April 2006 is:
A person who was married to, or a civil partner of, the member at the date of the member’s death is a dependant of the member.
A child of the member is a dependant of the member if the child
- has not reached the age of 23, or
- has reached the age of 23, and in the opinion of the scheme administrator, was at the date of the member’s death dependent on the member because of physical or mental impairment.
A person who was not married to the member or was not in a civil partnership with the member at the date of the member’s death and is not a child of the member is a dependant of the member if, in the opinion of the scheme administrator, at the date of the member’s death the person was financially dependant on the member, the person’s financial relationship with the member was one of mutual dependence, or the person was dependant on the member because of physical or mental impairment.
Can I specify who gets what on my death?
Apart from any contracted out benefits, you had complete control at the time you retired, to select any eligible partner and the amount of benefit they will receive on your death. If that person dies before you no benefit would be payable. You should advise the insurance company or scheme administrator if this happens.
If you have contracted out benefits and you remarry or enter into a new civil partnership you should contact your insurance company (or scheme administrator) as soon as possible.
What if I have no dependants according to the rules of the arrangement or the HMRC rule?
Where there is no-one eligible to receive a benefit from your pension arrangement on your death, in general any money which relates to you would be paid into your estate and settled in accordance with your direction under your Will. If you have no Will, the Courts will determine who should receive the benefit. Unless your legal representatives pursue the scheme administrator for the benefits, the funds could remain with the scheme forever.
Summary & Key Points
When making enquiries about your pension benefit it is very important that you make it clear that you are a pensioner member.
On average, people change jobs every 5 to 6 years. It is possible therefore, that you will have more than one pension benefit. For each pension benefit, you need to consider the following items:
- Consider your personal circumstances. Do you have dependants? Are dependants’ benefits important to you?
- Does your pension arrangement provide dependants’ benefits on your death?
- Do your dependants meet the criteria that your pension scheme sets to qualify for benefits?
- Have your circumstances changed at all in terms of your dependants?
- Have you completed and returned to your pension schemes a Nomination Form in respect of death benefits?
- Keep informed. Legislation may change. Your circumstances may alter.
- Money purchase schemes have many forms and can be quite different from one another. Don’t assume that what applies to your money purchase schemes will necessarily apply to other pension arrangements that you may have.
- HMRC impose rules, which registered pension schemes must conform to.
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
My Dependants v1.2 Pensioner MP
Last updated 13/07/2007